Uproar over mailshot VAT charge

The row, highlighted at a conference of the Charity Finance Directors’ Group in London, centres on a row over the definition of advertising for VAT purposes.Under the current system, business costs, such as advertising, are zero-rated, meaning that charities can recover part of their VAT.

But this rule does not apply to mailshots sent out by charities.

Nick Kavanagh, chairman of the Charities Tax Reform Group and finance director of Save the Children, told Accountancy Age: ‘It is the significant lack of logic that troubles us. If you advertise by way of mailshots then it’s not zero-rated. We find this quite astonishing.’

Melvin Coleman, finance director of Amnesty International UK, said: ‘We suffer partial crimes of irrecoverable VAT. Most of the work we do is campaigning, which is not considered to be a business activity.’

A spokesman for Customs said: ‘We’re happy to discuss this with the group. We already meet with them regularly.’

But he added: ‘There’s no distinction between charities and businesses as far as mailshots are concerned. Mailshots are not zero-rated.

‘The problem we have with charities doing mailshots is that they put in all sorts of stuff: diaries, pens and forms. There’s a limit to what you can call advertising.’

The CTRG said the issue highlighted the complexity and interpretation of the VAT system for charities, which has led to ‘messy and illogical exceptions’.The group has been holding talks on a regular basis with Customs in an attempt to persuade it to simplify the system, since this year’s Budget offered little respite for charities.

Onus of funding rests with charitiesThe charity sector contributes Pounds 15bn in monetary terms to the economy and about 1 in 50 of the workforce now works for it – yet most of the population think charities do not, and should not, pay tax at all.

This government is using the charity and voluntary sectors to deliver programmes and services that were once the prerogative of local or central government, but the onus is still on charities to maintain other sources of income for their core funding.